How to pay off your student loans in 10 years or less

Bernie Sanders and Elizabeth Warren are already vowing to do something about student loan debt. This is why the 1.6 trillion dollar issue could play a big part in the 2020 election.
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There are two key methods you can use to make sure you're out of debt within a decade. Here are the details on both and how to decide which will work best for you.Image credit: Getty Images.

For the millions of people who had to borrow money in order to afford their college education, student loans are an unfortunate reality. With many graduates owing tens of thousands of dollars on loans before earning even the first cent in their budding careers, it can be extremely hard to get off to a good financial start.

However, you can come up with a strategy that will let you get your student loans paid off within 10 years or even less. One method involves simply coming up with the money to make the necessary payments to reduce your outstanding principal balance on all your loans to zero between now and 2029. Another, though, involves taking advantage of a program that's designed to help promote employment in certain key areas of the economy by offering loan forgiveness. That program won't be ideal for everyone, but it does offer a way for many graduates who'd otherwise have a lot of trouble ever getting out of debt to overcome their financial challenges.

The basics of the Public Service Loan Forgiveness Program

The U.S. Department of Education's Federal Student Aid office runs the Public Service Loan Forgiveness Program, or PSLF Program for short.

In order to qualify for the program, you have to meet several requirements. First, you need to work full-time for a government agency or certain types of nonprofit organizations. These include jobs at the federal, state, local, or tribal government level, as well as charitable organizations or other nonprofits that provide certain types of public services. It's important to understand that employers such as partisan political organizations, labor unions, and government contractors don't qualify for the PSLF Program treatment for your student loans.

For the purposes of the program, full-time means 30 hours or more per week, or whatever your employer considers to be full-time, whichever is greater. You can combine multiple part-time jobs as long as the combined average is at least 30 hours a week.

One key requirement of the PSLF Program is that you have to have a type of student loan that qualifies for favorable treatment. Only federal Direct loans are eligible for the PSLF treatment, so if you have private loans, you won't be able to use the program to get them paid off within 10 years. In addition, if you've received federal loans that aren't Direct loans, such as through the Federal Family Education Loan (FFEL) or Federal Perkins Loan programs, they won't automatically be eligible for PSLF either. However, in that case, using a Direct Consolidation Loan to consolidate those other types of loans into a single loan can effectively make your entire loan balance eligible.

How to use PSLF to pay off your loans

Assuming you meet the requirements above, you can use the PSLF Program to get your loans paid off after you've made 120 qualifying monthly payments under an income-driven repayment plan. That's especially important for consolidation loans because of two things.

First, if you made payments on a qualifying Direct loan and then consolidate, you'll lose credit for those earlier payments and essentially have to start over. Second, the standard repayment plan for Direct Consolidation Loans doesn't qualify for PSLF treatment, so you'll need to make sure you get an income-driven repayment plan in place.

Also, to qualify, you have to make the payment in full no later than 15 days after its due date. Only payments that are required count, so if you make optional payments while you're in school or during a grace period, deferment, or forbearance, they won't count toward the 120-payment target.

If you intend to use the PSLF Program, you should complete and submit an annual Employment Certification Form with the Department of Education to verify your qualifying employment.

You should also submit a form if you change employers during the 10-year period. Doing so will also give you a chance to find out if the federal government has any problems with your submission, such as determining that your employer isn't in fact a qualifying employer or that you don't have loan types that are eligible for the program.

Once you've made 120 qualifying payments, it's time to submit your PSLF application. In it, you'll need to prove you've met all the qualification requirements. If your application is accepted, then your loans will be forgiven in full. Moreover, you'll get the added benefit of not having that cancellation of indebtedness treated as taxable income, as it would with most other types of loans.

For more information about loan forgiveness for public service employment, the Department of Education's PSLF Program website is extremely valuable. It's also a good place to find the applications you'll need if you take advantage of the program.

Using the traditional method to get out of debt in 10 years

If you don't qualify for the PSLF Program, then you'll likely have to turn to more conventional means to pay down your loans. With some types of federal loans, your monthly loan payments will be calculated using the 10-year standard repayment plan unless you affirmatively choose a different repayment plan.

If you make the payments called for under the 10-year standard repayment plan, then you'll have a zero balance and be out of debt at the end of 10 years. That's why the PSLF Program essentially requires an income-based repayment plan – otherwise, there wouldn't be any outstanding loan balance to forgive.

Other loans will have payments calculated over longer periods of as much as 20 to 25 years. In that event, you'll need to either make extra payments from time to time or boost the size of your monthly payments to pay down the principal more quickly.

A student loan calculator is an extremely valuable tool to help you figure out what options you'll have to pay down your loan debt more quickly. However, taking the example of a 20-year loan at 6%, you'd have to boost your monthly payments by a little more than half in order to pay off a loan within 10 years.

Get out of debt

Whichever method you choose, paying off your student loan debt in 10 years or less is a worthy and achievable goal. By looking at your situation, you can decide which of these options is more likely to help you reach your financial goal of putting your loans behind you and getting on with your financial life.

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